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Property investment sales surge to 3-year high

It’s been a banner year for big-ticket property transactions of at least S$10 million each.

As at Dec 23, the tally stood at S$22.5 billion – up 31 per cent from 2015′s S$17.2 billion, going by Savills Singapore’s figures.

CBRE and Cushman & Wakefield have similar numbers.

This year’s tally of property investment sales, as these transactions are also known, is the highest in three years and has been supported by two mega deals – BlackRock’s S$3.38 billion sale of Asia Square Tower 1 to Qatar Investment Authority and the government’s S$2.57 billion sale of a white site slated for mostly office use along Central Boulevard to a unit of IOI Properties Group.

CBRE’s data points to S$10.1 billion of office investment sales deals this year (up to Dec 20).

This gave the sector the lion’s share or 44 per cent of overall investment sales.

This was followed by the residential segment, accounting for 33 per cent or S$7.5 billion worth of transactions (supported by the Shunfu Ville and Raintree Gardens collective sales and City Developments’ profit participation securities transaction of the completed Nouvel 18 condo).

“With some key major deals out of the way in 2016, the pipeline for 2017 seems to be a shade lesser,” commented CBRE Research’s head of Singapore and South-East Asia Desmond Sim.

Property pundits say next year’s pipeline of big transactions includes Jurong Point mall and Asia Square Tower 2, each expected to fetch around S$2 billion.

The office and residential sectors will remain key drivers and analysts generally expect the overall investment sales next year to remain in the region of 2016′s level or to soften, citing the rising interest-rate environment and slowing trade in Asia if incoming US president Donald Trump fulfils his promise of pursuing a protectionist stance.

However, Colliers International managing director of Asia capital markets and investment services Terence Tang hazards a guess that 2017′s investment sales will be similar to 2016′s or possibly 10 per cent higher. “Residential will account for a bigger proportion of deals in 2017 than office – the reverse of what we have seen this year – driven by developers’ voracious appetite for replenishment land via both state land tenders and private-sector collective sales.”

Moreover, says Savills Singapore’s managing director and head of investment and residential services Steven Ming, residential developers that face looming sales deadlines stipulated under the government’s Qualifying Certificate conditions will be motivated to divest their unsold inventory through bulk sales of units or structured deals for their projects – to avoid paying hefty penalties to the state.

“Investing in high-end residential properties remains appealing given the probability of investing at below replacement cost,” he noted.

Meanwhile, Colliers’ Mr Tang said the Singapore office sector remains on the maps of global and regional investors because of the high quality of buildings completed over the past decade and the covenant strength of tenants in these developments.

However, further interest-rate hikes are on the cards while office rents and occupancies will continue to come under pressure next year.

“So investors will demand higher yields – but owners may not be willing to let go of their assets at lower prices, at least in the near term,” said Mr Tang.

Cushman & Wakefield Singapore research director Christine Li observes that this mismatch in pricing and yield expectations between buyers and sellers was already evident in office deals this year.

Private-equity funds, which had been the more active buyers of commercial property in the past, took a backseat as a result. “Instead, non-traditional buyers such as the ultra high net worth families and sovereign wealth funds (SWFs) led the buying this year.”

In a similar vein, Savills’s Mr Ming predicts that SWFs and insurance companies are likely to dominate big-ticket office purchases in the next 12 months. “This is because of the expected protracted compressed yield environment which makes them more competitive investors given their lower capital costs, and the continued attraction of Singapore as one of Asia’s safe harbour markets to be invested in.”

As office rents generally are expected to continue softening in 2017 as the sector faces the brunt of an oversupply and a weakened economic outlook, this could draw new capital into the sector in anticipation of lower prices.

“But the resultant intensified buying competition amid a finite saleable inventory will likely keep capital values stable,” suggests Mr Ming.

Both CBRE and Savills expect total investment sales in 2017 to be in the S$18-S$20 billion region – down from this year’s high base, marked by mega deals.

Ms Li of Cushman said the figure could remain in the S$20 billion range.

Mr Tang highlighted that the Chinese government’s general policy to discourage outflow of capital to stem a further fall in the yuan may slow Chinese investment into Singapore real estate.

Further interest-rate hikes are also seen as a dampener on property deals in 2017, which may result in some investors adopting a wait-and-see position, especially if they wish to first see whether Mr Trump will actually implement the protectionist policies he championed during his election campaign.

On the flip side, argues Mr Tang, “Mr Trump’s policies are also expected to create a more inflationary environment – during which typically, people tend to go into real estate for a hedge”.

A weakening Singapore dollar is also expected to attract foreign investors to Singapore properties.

CBRE’s data compiled on Dec 20 showed that so far this year, investment sales of office properties have more than doubled to S$10.1 billion from S$4.2 billion last year.

Residential property deals have expanded 42.7 per cent to S$7.5 billion from S$5.2 billion. Investment sales of industrial property have also climbed 42.8 per cent to S$2.7 billion from S$1.9 billion previously.

On the whole, investment sales that originated from the public sector have dipped 0.7 per cent to S$5.8 billion this year while transactions originating from the private sector have risen 41 per cent to S$17.1 billion, going by CBRE figures.

As a result, the public sector’s share slipped to 25.4 per cent in 2016 from 32.5 per cent last year.

“This was due to a cutback in Government Land Sales sites,” said Mr Sim.

Singapore’s second-largest developer sees cheaper deals

City Developments Ltd, Singapore’s second-largest developer, may seek to buy offices this year as rising interest rates makes such assets cheaper worldwide.

“We are coming into a very good time for acquisitions,” Grant Kelley, chief executive officer of City Developments, said in an interview in Singapore.

“The long-term trend line for assets for the next 12 to 24 months could be deflationary because I believe as interest rates go up fixed income will become more attractive and maybe liquidity will drain from real estate assets a little bit.”

City Developments, run by billionaire Kwek Leng Beng, has been diversifying outside Singapore after government curbs crimped demand at home. The firm has invested more in residential and hotel properties over the last couple of years, although that may change if commercial assets come up for sale at discounted prices this year or in early 2017, Mr Kelley said.

Market volatility has increased the appeal of property as an investment, even as an uncertain global economic outlook crimps the price buyers are willing to shell out. Global real estate investors are expected to plow more than US$1 trillion into the property market this year, a 6 per cent increase from 2015, according to a CBRE Global Investor Intentions Survey released in March.

City Developments will focus on five markets as part of its diversification, including China, Australia, Japan, the US and the UK, Mr Kelley said. The company has said it will meet its target of investing S$5 billion in overseas markets by 2018.

The developer reported a 14 per cent decline in profit to S$105.3 million for the quarter ended March 31, while revenue slid 11 per cent to S$723.3 million. It is expanding its fund-management platform and has completed two deals valued at S$2.6 billion since December 2014, the company said.

It is on target to grow fund assets under management to S$5 billion by 2018, Mr Kelley said, reiterating the company’s stated target.

City Development shares rose 1.5 per cent to S$8.26 at 10:44 am in Singapore trading, bringing the year’s gains to 8.4 per cent. The benchmark Straits Times Index has declined 3.6 per cent this year.

Mr Kelley said the developer is “aggressively” working on two joint-venture deals, similar to ones it undertook in the last couple of years, where it packaged some properties and sold stakes to help it free up cash, but will only seal them if the pricing is right.

It partnered with Blackstone Group LP and CIMB Bank Bhd in 2014 for S$1.5 billion of “profit participation securities” that invested in the cash flows of its luxury properties in Sentosa Cove. Last year, it bundled three office properties in the city-state and did a similar deal with Alpha Investment Partners valued at S$1.1 billion.

“We want to do more, but the asset market is coming down,” Mr Kelley said.

Even though income-yielding assets such as offices grew expensive after being sought by sovereign wealth funds as bond yields tumbled, they are expected to become cheaper when rates rise and funds divert money back to government debt for better risk-free returns, he said.

“This is a market to be an asset acquirer not an asset disposer,” Mr Kelley said.

Room for more commercial developments in northeast S’pore

The government has been ramping up housing supply in recent years, particularly in the north-eastern part of Singapore and some analysts said there is room for more commercial developments to meet the needs of the growing population.

According to the Urban Redevelopment Authority (URA) and the Housing and Development Board (HDB), a total of 44,868 residential units will be completed in Sengkang and Punggol by 2016.

The nearby Pasir Ris town will also see 10,243 units in the next three years.

As a result, analysts said some of these towns may have limited shopping options.

Chia Siew Chuin, director of research and advisory at Colliers International, said: “When we look at shop space, we need to bear in mind that this excludes space used for F&B as well as entertainment space. If we were to consider the total amount of shop space available in the main areas of Sengkang, Punggol, Pasir Ris as well as Tampines, we can actually see that Sengkang and Punggol have a lower space per capita of about two square feet, compared to Tampines which has about seven square feet.”

The completion of The Seletar Mall and Waterway Point in the next two to three years would add another 780,000 square feet of retail space in the Sengkang/Punggol area.

The URA has also launched a commercial site at Punggol Point for sale on December 4 last year.

Looking ahead, as these new towns continue to grow, analysts said there is room for more shopping malls.

Responding to MediaCorp’s query, CapitaMall Trust which owns Rivervale Mall in Sengkang said it continually looks at opportunities to refresh its malls through asset enhancement initiatives to meet shoppers’ needs.

Richard Ng, head of asset management at CapitaMall Trust said, “When assessing a mall, we observe the shopper and vehicular traffic, shopper flow through the mall, purchasing patterns and tenants’ sales.”

Meanwhile, Frasers Centrepoint said as Sengkang town continues to grow, it will review Compass Point mall’s tenant mix to optimise space usage. The mall, which is located near the Sengkang MRT station, currently house 120 shops.

Frasers Centrepoint added that its joint venture project at Watertown in Punggol will also comprise a retail component – Waterway Point. The mall is expected to be completed by 2015 and will house 220 shops.

Donald Han, HSR Property Group’s special advisor, said: “In three to five years, there could be more opportunities for commercial sale of sites. Generally, these malls maybe smaller in size of less than 300,000 square feet. In some cases, they could be about 100,000 square feet to 200,000 square feet, mainly catering for the local population.”

Some analysts said one way to address the issue is for the government to release more mixed development sites in these areas. On these sites, developers will be able to build a combination of residential units and commercial shops which will also serve residents in the vicinity.

Analysts expect the government to continue to improve the range of facilities in new towns.

Lee Sze Teck, senior manager of training, research and consultancy at DWG, said: “The Masterplan review is coming up this year and we will probably see some changes to land uses. From there on, we will see how the URA is going to implement some of these changes to cater for an increase in population.”

Responding to query, HDB said more commercial facilities will be provided to serve residents as a town gets more developed.

It added that 71 shops, eating houses and supermarkets will be built in Sengkang, Punggol and Pasir Ris by 2016.

The National Development Ministry is due to release its Land Use Plan paper this week.

It will outline the government’s land use plan to support possible population growth.

Source : Channel NewsAsia – 30 Jan 2013